Post Holdings: Reports Results for Q2 of Fiscal Year 2014

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company, reported results for the fiscal quarter ended March 31, 2014. Highlights: Net sales were 438,0 million USD, including 198,5 million USD from acquisitions. The Holding closed three acquisitions in the second quarter: Dakota Growers Pasta Company, Golden Boy Foods and Dymatize Enterprises. RTE cereal U.S. Dollar market share increased 0,9 share points to 11,3 percent for the 13 weeks ended March 29, 2014. Adjusted Ebitda is 63,5 million USD, including 23,7 million USD from acquisitions.

Post operates four reportable segments: Post Foods, Attune Foods, Active Nutrition and Private Brands. Dymatize Enterprises LLC results are included in Post´s Active Nutrition segment. Dakota Growers Pasta Company Inc. and Golden Boy Foods Limited have been combined to form Post´s Private Brands segment. The Dakota Growers acquisition was effective January 01, 2014 and the Golden Boy and Dymatize acquisitions were effective February 01, 2014. For analysis purposes, net sales on a comparable basis is provided for the Attune Foods, Active Nutrition and Private Brands segments.

Second Quarter Consolidated Operating Results

Second quarter net sales were 438,0 million USD, an increase of 189,8 million USD, or 76,5 percent, compared to prior year. Acquisitions, defined as the Attune Foods, Active Nutrition and Private Brands segments, contributed 198,5 million USD to consolidated net sales. Both second quarter 2014 and 2013 include a full quarter contribution of the initial Attune Foods acquisition. The Active Nutrition and Private Brands segment results include partial period contributions for acquisitions completed during the second quarter of 2014.

Gross profit increased 26,9 million USD to 129,4 million USD for the second quarter compared to the prior year. This included 34,1 million USD in gross profit from acquisitions, after incorporating the negative impact of inventory adjustments of 7,3 million USD resulting from acquisition accounting.

Selling, general and administrative (SG+A) expenses for the second quarter increased 34,9 million USD to 104,8 million USD compared to the prior year. SG+A was 23,9 percent of net sales and included 21,5 million USD of SG+A from acquisitions. Second quarter 2014 SG+A included 10,5 million USD of acquisition related transaction expenses for announced transactions.

Starting in the second quarter of fiscal year 2014, Post now reports foreign currency gains and losses separately from SG+A. Accordingly, SG+A for prior periods has been adjusted to align with fiscal 2014 presentation. Losses on foreign currency, which in 2014 were primarily related to hedge of the Golden Boy purchase price, were 11,9 million USD for the second quarter compared to 0,2 million USD in the prior year quarter.

Adjusted Ebitda was 63,5 million USD for the second quarter, up 12,5 million USD compared to the prior year. Second quarter 2014 included 23,7 million USD from acquisitions.

For the second quarter, the net loss attributable to common stockholders was (22,6) million USD, or (0,67) USD per diluted common share. Adjusted net loss attributable to common stockholders was (7,2) million USD, or (0,21) USD per diluted common share, for the second quarter. Weighted-average diluted common shares outstanding increased to 33,6 million shares for second quarter 2014 compared to 32,9 million for the prior year quarter. The increase resulted from an additional 5,75 million shares of common stock included in the second quarter weighted-average from the issue date of March 18, 2014.

Six Month Consolidated Operating Results

Net sales for the six months ended March 31, 2014 were 735,0 million USD, an increase of 249,9 million USD, or 51,5 percent, over the prior year period. Acquisitions contributed 258,6 million USD to consolidated net sales, net of 0,3 million USD of inter-segment eliminations.

Gross profit increased 35,7 million USD to 243,9 million USD compared to the prior year period. The six months ended March 31, 2014 included 51,6 million USD in gross profit from acquisitions, after incorporating the negative impact of inventory adjustments of 7,3 million USD resulting from acquisition accounting.

SG+A expenses increased 44,1 million USD to 186,2 million USD compared to the prior year and was 25,3 percent of net sales. SG+A from acquisitions was 29,6 million USD in the six months ended March 31, 2014. SG+A for the six months ended March 31, 2014 included 14,9 million USD of acquisition related transaction expenses for announced and unsigned transactions, 13,9 million USD of which was related to announced transactions.

Losses on foreign currency were 13,5 million USD for the six month period compared to 0,1 million USD in the prior year period; the losses in 2014 were primarily related to hedge of the Golden Boy purchase price.

Adjusted Ebitda was 119,4 million USD for the six months ended March 31, 2014, up 15,9 million USD compared to the prior year period. The six months ended March 31, 2014 included 33,9 million USD from acquisitions.

For the six months ended March 31, 2014, the net loss attributable to common stockholders was (27,6) million USD, or (0,83) USD per diluted common share. Adjusted net loss attributable to common stockholders was (7,3) million USD, or (0,22) USD per diluted common share.

Post Foods (Post branded cereal business)

Net sales were 239,5 million USD, a decline of 5,9 million USD, or 2,4 percent, compared to the prior year. Gross profit declined 4,7 million USD to 97,6 million USD, with gross margin of 40,8 percent, down approximately 90 basis points compared to the prior year. SG+A declined from 53,3 million USD to 52,7 million USD in the second quarter. Segment profit was 41,7 million USD and 45,3 million USD for second quarter 2014 and 2013, respectively. Segment Adjusted Ebitda was 54,4 million USD and 60,2 million USD for second quarter 2014 and 2013, respectively.

Softness in the ready-to-eat (RTE) cereal category during the quarter negatively impacted Post Foods results. Compared to the prior year quarter, Post Foods volumes increased one percent but average net selling prices decreased four percent. The decline in average net selling prices resulted from an unfavorable product mix and higher trade spending compared to the year ago quarter as well as liquidation inventory sales.

Post Foods net sales for the six months ended March 31, 2014 were 476,4 million USD, a decrease of 5,9 million USD, or 1,2 percent, compared to the prior year period. Gross profit declined 10,7 million USD to 197,9 million USD, with gross margin of 41,5 percent, down approximately 170 basis points compared to the prior year period. SG+A declined from 109,5 million USD to 103,1 million USD for the six months ended March 31, 2014. Segment profit was 88,2 million USD and 92,3 million USD for the six months ended March 31, 2014 and March 31, 2013, respectively. Segment Adjusted Ebitda was 114,1 million USD and 122,3 million USD for the six months ended March 31, 2014 and March 31, 2013, respectively.

According to Nielsen, U.S. RTE cereal category Dollars were down 4,8 percent and category Pounds declined 4,0 percent for the 13 weeks ended March 29, 2014, compared to the prior year period. For the same time period, Post Foods´ U.S. Dollar market share was 11,3 percent, up 0,9 share points compared to the year ago quarter. Compared to the 13 weeks ended December 28, 2013, Post Foods´ U.S. Dollar market share grew 0,7 share points. Post Foods´ U.S. Pounds share was 11,6 percent for the 13 weeks ended March 29, 2014, up 1,0 share points compared to the prior year period.

In fiscal year 2014, Post changed its methodology for allocating certain corporate costs to segment profit. Accordingly, segment profit for fiscal year 2013 has been adjusted to align with fiscal year 2014 presentation. This change only impacted the Post Foods segment profit. See the historical segment information tables in this press release for the adjusted presentation.

Attune Foods

Attune Foods includes the cereal and snack business of the Attune, Uncle Sam and Erewhon brands (acquired on December 31, 2012) and the private label and branded cereal, granola and snack business of the Golden Temple, Peace Cereal, Sweet Home Farm and Willamette Valley Granola Company brands (acquired on May 28, 2013).

Net sales for the segment were 22,2 million USD for second quarter 2014, up 19,4 million USD compared to reported prior year net sales of 2,8 million USD. Both reported second quarter 2014 and 2013 included a full quarter contribution of the December 2012 Attune Foods acquisition; however, second quarter 2014 and 2013 are not fully comparable, as a result of the timing of the May 2013 Attune Foods acquisition. On a comparable basis, the Attune Foods segment net sales for the second quarter of 2014 were up 7,8 percent or 1,6 million USD over the same period in 2013.

Net sales on a comparable basis is the comparison of the net sales for the Attune Foods segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

Attune Foods segment profit was 1,9 million USD and (0,6) million USD for second quarter 2014 and 2013, respectively. Segment profit for second quarter 2013 was negatively impacted by an inventory adjustment of 0,5 million USD resulting from acquisition accounting. Segment Adjusted Ebitda was 3,6 million USD and zero for second quarter 2014 and 2013, respectively.

For the six months ended March 31, 2014, net sales for the segment (including inter-segment sales) were 45,4 million USD, up 42,6 million USD compared to reported prior period net sales of 2,8 million USD. The Attune Foods segment profit was 4,5 million USD and (0,6) million USD for the six months ended March 31, 2014 and March 31, 2013, respectively. Segment profit for the six months ended March 31, 2013 was negatively impacted by an inventory adjustment of 0,5 million USD resulting from acquisition accounting. Segment Adjusted Ebitda was 8,0 million USD and zero for the six months ended March 31, 2014 and March 31, 2013, respectively.

Active Nutrition

Active Nutrition is comprised of Premier Nutrition Corporation (acquired on September 01, 2013), which includes the Premier Protein and Joint Juice brands, and Dymatize (acquired on February 01, 2014), which includes the Dymatize and Supreme Protein brands.

Net sales for the segment were 70,6 million USD for the second quarter. Second quarter 2014 included a full quarter contribution from Premier Nutrition and a partial quarter (two-month) contribution from Dymatize. On a comparable basis, net sales for Active Nutrition for the second quarter of 2014 were up 7,8 percent, or 5,7 million USD over the same period in 2013.

Net sales on a comparable basis is the comparison of the net sales for the Active Nutrition segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

Net sales growth for the segment was driven by new Premier Nutrition products, Premier Nutrition channel expansion into food/drug/mass channels and strong consumer demand for Dymatize products at key customers. However, consumer traffic at key Dymatize retailers was depressed by the severe winter weather and negatively impacted Dymatize results in the second quarter of 2014 compared to the year ago pre-acquisition quarter. Additionally, supply chain issues caused missed shipments. Management has identified these issues and is addressing improvements to demand planning and manufacturing processes.

Active Nutrition segment profit and segment Adjusted Ebitda for second quarter 2014 were 0,2 million USD and 6,7 million USD, respectively. Segment profit for second quarter 2014 was negatively impacted by an inventory adjustment of 2,0 million USD resulting from acquisition accounting.

For the six months ended March 31, 2014, net sales for the segment were 107,8 million USD. The Active Nutrition segment profit and segment Adjusted Ebitda for the six months ended March 31, 2014 were 4,4 million USD and 12,5 million USD, respectively. Segment profit for the six-month period was negatively impacted by an inventory adjustment of 2,0 million USD resulting from acquisition accounting.

Private Brands

The Private Brands segment includes the private label pasta business of Dakota Growers (acquired on January 01, 2014) and the private label peanut butter and other nut butters, dried fruits and baking and snacking nuts business of Golden Boy (acquired on February 01, 2014).

Net sales for the segment were 105,7 million USD for second quarter 2014 and for the six months ended March 31, 2014. Second quarter 2014 included a full quarter contribution from Dakota Growers and a partial quarter (two-month) contribution from Golden Boy. On a comparable basis, net sales for Private Brands for the second quarter of 2014 were up 1,0 percent, or 1,3 million USD over the same period in 2013.

Net sales on a comparable basis is the comparison of the Private Brands sales for each segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

The Private Brands segment profit and segment Adjusted Ebitda for second quarter 2014 and for the six months ended March 31, 2014 were 0,8 million USD and 13,4 million USD, respectively. Segment profit for both periods was negatively impacted by an inventory adjustment of 5,3 million USD resulting from acquisition accounting.

Interest and Income Tax

Net interest expense was 37,3 million USD for the second quarter compared to 21,6 million USD for the prior year quarter. For the six months ended March 31, 2014, net interest expense was 66,3 million USD, compared to 40,8 million USD for the six months ended March 31, 2013. The increase for both the quarter and the six month period was driven primarily by the issuance of 350,0 million USD and 525,0 million USD in aggregate principal amount of senior notes in July 2013 and November 2013, respectively. Additionally, Post issued 350,0 million USD in aggregate principal amount of senior notes in March 2014.

Income tax benefit was (19,3) million USD in the second quarter of fiscal 2014, compared to an expense of 2,2 million USD in the second quarter of fiscal 2013. The effective income tax rate was 51,3 percent for the second quarter of fiscal 2014 compared to 30,1 percent for the same period a year ago. For the six months ended March 31, 2014, the income tax benefit was (20,7) million USD, an effective income tax rate of 50,0 percent, compared to an expense of 5,7 million USD and an effective income tax rate of 31,0 percent for the six months ended March 31, 2013.

The elevated effective income tax rate for both periods is a function of Post´s estimated range of earnings (loss) before income taxes for fiscal 2014 excluding the impact of pending acquisitions (as discussed below). Small variations in earnings (loss) before income taxes and permanent differences are anticipated to have a magnified impact on the effective income tax rate for fiscal 2014. Post management expects its effective tax rate will stabilize and will be approximately 32 percent-35 percent in fiscal year 2015.

Update on Acquisitions and Financing

In a release dated April 17, 2014, Post announced it has agreed to acquire MFI Holding Corporation («Michael Foods»), a leading producer of value-added food products and service solutions to customers across the foodservice, retail and food ingredient channels. Under the terms of the agreement, Post will acquire Michael Foods for 2,45 billion USD on a cash-free, debt-free basis, subject to working capital and other adjustments. The acquisition is expected to be completed in the second calendar quarter of 2014, Post´s fiscal third quarter, subject to various closing conditions.

Concurrent with the signing of the agreement, Post obtained financing commitments under which various lenders have committed to provide up to 1’765 million USD in credit facilities, including a committed bridge loan of up to 340 million USD. Committed facilities, together with cash on hand, are sufficient to fund the purchase price. Post currently expects to replace a portion of the committed financing with approximately 635 million USD of new term loan borrowings with the remainder of the financing consisting of approximately 500 million USD of newly-issued common and/or equity-linked securities and approximately 630 million USD of newly-issued senior unsecured debt securities. The final structure and terms of the acquisition financing will be subject to market and other conditions, and may be materially different than current expectations.

On February 03, 2014, Post announced it has agreed to acquire the PowerBar and Musashi brands and related worldwide assets from Nestle S.A. The transaction, initially expected to be completed in Post´s fiscal third quarter, is now expected to close in Post´s fiscal 2015 first quarter, subject to various closing conditions. Post management anticipates combining the PowerBar and Musashi brands into Post´s existing Active Nutrition segment.

Outlook

Including results of all completed acquisitions to date (which excludes the pending acquisitions of the PowerBar and Musashi brands and of Michael Foods), Post management continues to expect fiscal 2014 Adjusted Ebitda to be between 300 million USD and 320 million USD. For the second half of fiscal 2014, Post management expects modest net deflation in commodities and lower levels of promotional activity resulting in improved gross margins when compared to the first half of fiscal 2014.

On April 01, 2014, Post acquired certain peanut butter manufacturing and other assets from the bankruptcy estate of Sunland Inc. for 26 million USD. As a result, capital expenditures for fiscal 2014, inclusive of all completed acquisitions to date (which excludes the pending acquisitions of the PowerBar and Musashi brands and of Michael Foods), are expected to be between 90 million USD and 100 million USD, an increase from the prior estimate of between 75 million USD and 85 million USD. The capital expenditure guidance is broken into the following categories: 26 million USD for assets associated with Sunland Inc.; 20 million USD for capital expenditures associated with our Modesto facility closure; and the remaining balance for ongoing capital spending. Additionally, Post management has provided the below information to assist the investment community:

  • Pro Forma Adjusted Ebitda for the last twelve months ended March 31, 2014, calculated as if all acquisitions completed to date were owned for the entire period, would have been 321,2 million USD.
  • Post management currently expects Pro Forma Adjusted Ebitda for the twelve-month period ended September 30, 2014, calculated as if all acquisitions completed to date were owned for the entire period, will be between 320 million USD and 340 million USD.
  • Michael Foods Adjusted Ebitda for the last twelve months ended March 29, 2014 was 238,8 million USD, which does not give effect to Michael Foods´ acquisition of Primera Foods Corporation for periods prior to the date that acquisition was completed (June 27, 2013).
  • Post management currently estimates that Adjusted Ebitda for Michael Foods for calendar 2014 will be between 255 million USD and 270 million USD, prior to giving effect to synergies currently expected to be recognized in connection with the combination of Post and Michael Foods.
  • Post management currently expects to recognize approximately ten million USD in annual run-rate pre-tax synergies in fiscal year 2015 from improved commodity purchasing as well as indirect purchasing and professional services, as a result of benefits of scale from the acquisition of Michael Foods.
  • The second phase of Post´s previously announced Modesto, California facility closure is expected to be completed by September 2014, with the total net pre-tax annual cash savings of approximately 14 million USD expected to be fully phased in by fiscal year 2015.
  • Post management currently expects combined ongoing annual capital spending for Post and Michael Foods will be between 80 million USD and 90 million USD.
  • Post management currently estimates that its effective tax rate will stabilize and will be approximately 32 percent-35 percent in fiscal year 2015.
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